Let’s hope that when the debt bombs begin to go off that Washington resists the temptation to start setting off the real bombs. The problem is, many other countries—including Japan—are likely to default before we are. That’s the bad news—it means that America participation in what I have called the Supernova of Bretton Woods II (fiat money) will not include outright American debt default and forgiveness, implying that an inflation will be necessary to depreciate the value of the debt (and we’ve got lots of consumer and business debt to inflate out, too; we’re near record levels of total debt/GDP).

In a deflationary environment like we’re in now, history shows that about the only way to get an inflation going is to go to war.

The two links above suggest to me that the risk of unprovoked or false flag “justified” attacks by the American eagle is very high right now. My research on the sinking of the South Korean submarine leads me to believe that someone other than the North Koreans did it; the North Koreans denied it, and the torpedo used was available on international black markets. the international commission was a sham. My guess is that the Israelis did it to get a war going somewhere, so they could pile on with their intensely desired bombing of Iran in a general attack on the “axis of evil.”

Resist Stupid Wars that are bankrupting our country and making us weaker as a people. Let your elected representatives know how you feel.

Die young, live fast: The evolution of an underclass

FROM feckless fathers and teenaged mothers to so-called feral kids, the media seems to take a voyeuristic pleasure in documenting the lives of the "underclass". Whether they are inclined to condemn or sympathise, commentators regularly ask how society got to be this way. There is seldom agreement, but one explanation you are unlikely to hear is that this kind of "delinquent" behaviour is a sensible response to the circumstances of a life constrained by poverty. Yet that is exactly what some evolutionary biologists are now proposing.

There is no reason to view the poor as stupid or in any way different from anyone else, says Daniel Nettle of the University of Newcastle in the UK. All of us are simply human beings, making the best of the hand life has dealt us. If we understand this, it won't just change the way we view the lives of the poorest in society, it will also show how misguided many current efforts to tackle society's problems are - and it will suggest better solutions.

Evolutionary theory predicts that if you are a mammal growing up in a harsh, unpredictable environment where you are susceptible to disease and might die young, then you should follow a "fast" reproductive strategy - grow up quickly, and have offspring early and close together so you can ensure leaving some viable progeny before you become ill or die. For a range of animal species there is evidence that this does happen. Now research suggests that humans are no exception.

Certainly the theory holds up in comparisons between people in rich and poor countries. Bobbi Low and her colleagues at the University of Michigan at Ann Arbor compared information from nations across the world to see if the age at which women have children changes according to their life expectancy (Cross-Cultural Research, vol 42, p 201). "We found that the human data fit the general mammalian pattern," says Low. "The shorter life expectancy was, the earlier women had their first child."

But can the same biological principles explain the difference in behaviour between rich and poor within a developed, post-industrialised country? Nettle, for one, believes it can. In a study of over 8000 families, he found that in the most deprived parts of England people can barely expect 50 years of healthy life, nearly two decades less than in affluent areas. And sure enough, women from poor neighbourhoods are likely to have their babies at an early age and in quick succession. They have smaller babies and they breastfeed less, both of which make it easier to get pregnant again sooner (Behavioral Ecology, DOI: 10.1093/beheco/arp202).

In the most deprived parts of England, people can barely expect 50 years of healthy life - two decades less than in affluent areas

"If you've only got two-thirds as much time in your life as someone in a different neighbourhood, then all of your decisions about when to start having babies, when to become a grandparent and so on have to be foreshortened by a third," says Nettle. "So it shouldn't really surprise us that women in the poorest areas are having their babies at around 20 compared to 30 in the richest ones. That's exactly what you would expect."

Consciously or subconsciously, women do seem to take their future prospects into account when deciding when to start having children. At a meeting last year, Sarah Johns at the University of Kent in Canterbury, UK, reported that in her study of young women from a range of socioeconomic backgrounds in Gloucestershire, UK, those who perceived their environment as risky or dangerous, and those that thought they might die at a relatively young age, were more likely to become mothers while they were in their teens. "If your dad died of a heart attack at 45, your 40-year-old mum has got chronic diabetes and you've had one boyfriend who has been stabbed, you know you've got to get on with it," she says.

It's the same story in the US. The latest figures, from 2005, reveal that teenage motherhood accounts for 34 per cent of first births among African Americans - who are more likely to live in deprived areas - and 19 per cent among whites. Arline Geronimus of the University of Michigan at Ann Arbor, who has studied health inequalities and reproductive patterns, points out that healthy life expectancy is short for African Americans and women depend on extended family networks for support. This means it is in their interests to have children while they still have relatives in good physical shape to help out.

The shockingly rapid deterioration in health experienced by women in poor black neighbourhoods also directly affects mothers. Even women in their 20s have an increased risk of conditions such as hypertension that would reduce the chance of a healthy pregnancy and birth. In research carried out in the late 1990s, Geronimus and her colleagues found that in Harlem, a poor neighbourhood in New York City, the infant mortality rate for babies born to mothers in their 20s was twice that of the babies of teenage mums (Political Science Quarterly, vol 112, p 405). Geronimus thinks the situation may be even worse now, given that the rate of health deterioration in black women has increased in the past decade.

It is not simply a case of teenage girls from deprived backgrounds accidentally becoming pregnant. Evidence from many sources suggests that teen pregnancy rates are similar in poor and affluent communities. However, motherhood is a choice, as both Geronimus and Johns are keen to point out. Teenage girls from affluent backgrounds are more likely to have abortions than their less-privileged peers. In terms of reproduction, the more affluent girls are best off concentrating on their own career and development so that they can invest more in the children they have at a later stage. "It seems that girls are assessing their life chances on a number of fronts and making conscious decisions about reproduction," says Johns.

Another important issue is whether or not a girl's father is around when she is growing up. Developmental psychologist Bruce Ellis, of the University of Arizona in Tucson, has studied extensively the effects of girls' relationships with their fathers. His research shows that the less involved a father is with his daughter from an early age, and the less warm the relationship, the earlier she starts having sex and, potentially, babies (New Scientist, 14 February 2007, p 38).

Fathers in deprived neighbourhoods are more likely to be absent, which could be because they are following "fast" strategies of their own. These include risky activities designed to increase their wealth, prestige and dominance, allowing them to compete more successfully with other men for sexual opportunities. These needn't necessarily be antisocial, but often they are. "I'm thinking about crime here, I'm thinking about gambling," says Nettle, and other risky or violent behaviours that we know are typical of men in rough environments. A fast strategy also means a father is less likely to stick with one woman for the long term, reducing his involvement with his children.

Paternal benefits

That is unfortunate, since a father's involvement not only delays his daughter's reproduction but also has a big impact generally on the life chances of his children. In a study of 17,000 people in the UK born in a single week in March 1958, Nettle found that where father involvement was greater, children had higher IQ scores at age 11 and increased upward social mobility through adulthood (Evolution and Human Behavior, vol 29, p 416).

Lower investment in children, whether it be through the absence of dad, less breastfeeding from mum, or less parental attention generally because there are more children in the family, comes at a high cost to the children themselves. For one thing, Nettle's large-scale study of families in England found that babies born in the poorest areas have slower cognitive development, which compromises their education and prospects later in life.

To all this you might ask the question, aren't poor people bringing their problems on themselves? If only they would wait a while before starting to have babies they might be able to invest more in each one, providing a better diet and healthier lifestyle. It is not so simple. "Children of low income, low education families don't do well regardless of what their parents' age is," says Johns. What's more, youngsters who delay parenthood may actually be worse off. "In a US study looking at pairs of low-income sisters, the ones that became mothers in their teens quite often did better [in terms of employment and earnings] because they had something to focus their energy into and create a better life for."

Nettle agrees: "Overwhelmingly the poverty into which a baby is born is going to be a big influence, whatever the age of the mother. It may be that there's not much pay-off for waiting and doing other, more middle-class behaviours that public health people want to encourage the poor to do."

People in deprived areas face two kinds of hazard, Nettle says. First, there are constraints on what they are able to do to mitigate their situation. Diet is a prime example: "It's much more expensive to get 2000 calories a day from fresh fruit and vegetables compared with eating junk food," Nettle says. Then the environment is often physically more dangerous and unhealthy. "People are doing more dangerous jobs. There is probably more air pollution, more car accidents, a higher crime rate, poorer housing - things you cannot really do much about, which trigger a downward spiral of faster living and less attention to health."

Once you are in a situation where the expected healthy lifetime is short whatever you do, then there is less incentive to look after yourself. Investing a lot in your health in a bad environment is like spending a fortune on maintaining a car in a place where most cars get stolen anyway, says Nettle. It makes more sense to live in the moment and put your energies into reproduction now.

Evolutionary theory can explain these behavioural responses to poverty, but it doesn't make them desirable. So what is the answer? What can be done to help people escape from the slippery slope of poor health, poor education and deprivation?

Governments are very good at being concerned about rates of teenage pregnancy and violence among young men, but Nettle argues that no amount of money poured into sex education and parenting classes will change the situation if young people don't see a decent future for themselves. To change behaviour we have to change the environment, which means that actually reducing poverty in the most deprived areas is likely to do a much better job than education schemes or handing out morning-after pills.

No amount of money poured into sex education and parenting classes will change the situation if young people don't see a decent future for themselves

Perhaps the most compelling evidence for this comes from real-life situations. In the mid-1990s, the residents of one poor, mainly Native American district in North Carolina each received a windfall in the form of royalties from a casino that had been built on their land. After the windfall, the researchers recorded a significant reduction in conduct disorder - the psychologist's term for antisocial behaviour - among the poorest children (The Journal of the American Medical Association, vol 290, p 2023).

On a larger scale, during the 1990s there was a dramatic decline in teenage birth rates in the US, especially among African Americans. In 1993, 6.4 per cent of black girls aged between 15 and 17 became first-time mothers but by 2000 this had dropped to 4.5 per cent (Social Science and Medicine, vol 63, p 1531). Geronimus puts this down in part to the strong economic expansion and increase in employment rates during this time, which offered young black women job opportunities they were unlikely to have had before. Teen births among African Americans are now rising again, predictably, given the recent economic nosedive.

It's all relative

Still, reducing poverty alone probably isn't the answer. In their book The Spirit Level (Allen Lane, 2009), epidemiologists Richard Wilkinson and Kate Pickett, of the universities of Nottingham and York, UK, respectively, emphasise the degree of income inequality in a society rather than poverty per se as being a major factor in issues such as death and disease rates, teenage motherhood and levels of violence. They show that nations such as the US and UK, which have the greatest inequality in income levels of all developed nations, also have the lowest life expectancy among those nations, the highest levels of teenage motherhood (see diagrams) and a range of social problems.

The effects are felt right across society, not just among poor people. "Inequality seems to change the quality of social relations in society," says Wilkinson, "and people become more influenced by status competition." Anxiety about status leads to high levels of stress, which in turn leads to health problems, he says. In unequal societies trust drops away, community life weakens and society becomes more punitive because of fear up and down the social hierarchy.

"Really dealing with economic inequalities is difficult because it involves unpopular things like raising tax," says Nettle. "So rather than fighting the fire, people have been trying to disperse the smoke." Politically it is much easier to pump money into education programmes even if the evidence suggests that these are, on the whole, pretty ineffective at reducing the effects of poverty.

There are two quite different ways that societies can be made more equal, Wilkinson says. Some countries, like Sweden, do it by redistribution, with high taxes and welfare benefits. In others, earnings are less unequal in the first place. Japan is one such country, and it has one of the highest average life expectancies and lowest levels of social problems among developed nations. Other important factors, says Wilkinson, are strong unions and economic democracy.

The bottom line, if young people are to avoid being channelled into a fast reproductive strategy with the disadvantages that this entails, is that they should have the chance to develop a longer view - through better availability of jobs and health support. They need reasons to believe they have a stake in the future.

Wednesday, July 21, 2010

I will provide my “animal spirits” view on the double dip issue soon. I think we are looking at a long, agonizing slide into depression. I don’t see the pronounced failure of “animal spirits” that is the hallmark of a recession yet—just a very, very sick economy not getting better.

Monday, July 19, 2010

Oh, wow. The NYT discovers that we have too much debt, even as James Galbraith and Paul Krugman engage in a bitter bout of “my deficit is bigger than yours.” What the plutocracy-controlled mainstream hasn’t yet acknowledged and what Main Street has already figured out is that bailouts and stimulus go to the rich, not to them,or as I like to put it, the income distribution in the United States is like a car engine running on one cylinder—no matter how much Stimulus pours in, most of it goes to the already-rich. And heaven forbid we raise marginal tax rates.

The Europeans, who still have a social contract (and I’m talking about wage differentials in companies, not just government policy), even if burqua-strained, will kill the US in the dealing with the problem of excessive debt.

And from a consumer point of view, with near-zero interest rates and a stock market that looks like a falling knife more and more, the best rate of return one can get is paying off debt.

The US seems to need sado-masochistic crisis with real blood in the streets before it deals with its historical preference for opportunistic greed as the primary element of its social contract. Large damage is done to human capital by this means.

July 12, 2010

Paralyzed by Debt

By ROGER LOWENSTEIN

Last month, my wife and I refinanced our mortgage. Though the rate was lower and we could have afforded more debt, we paid down a chunk of the balance. Don’t ask me why — it just felt better to owe less money. Time was, such thrift would have been hailed as patriotic. Now it threatens the economic recovery. Less borrowing means less to spend.

Some people have no choice but to pare their debts (indeed, some are being foreclosed on). For others, call it morning-after sobriety or late-blooming prudence. Losing income tends to bring on a case of the nerves, and half of American workers have suffered a job loss or a cut in hours or wages over the past 30 months. And, need we add, people’s stock portfolios are not what they were.

The economic term is “deleveraging”; it means that, as opposed to the normal state of affairs, in which, each quarter, people borrow more money and banks issue more loans, credit in the economy is shrinking. Remarkably, this deleveraging has been going on for nearly two years. Ordinary Americans are behaving just as the banks they love to excoriate — having, formerly, assumed too much risk, they are going into hibernation. If credit, in the words of the writer James Grant, is money of the mind, people have become psychologically indisposed to minting it.

Such restraint, even if sensible individually, does not augur well for the gross domestic product. Total household credit has contracted for seven straight quarters. Mortgage debt is down $462 billion from the peak, which it reached in November 2008. Bank-card borrowings, which peaked two months later, are off $126 billion. Auto loans have fallen $122 billion; home-equity lines, $77 billion.

To peruse such figures is to get a whole new sense of America’s economic crisis. The bank failures and bailouts of the fall of ’08 called to mind a great and terrible battle. The drone of falling credit numbers since then suggests a ponderous army in drawn-out retreat. As Stephanie Pomboy, publisher of the newsletter Macro­Mavens, has pointed out, government transfers like stimulus spending and tax credits masked the effects of diminishing credit for a while. That is to say, even if people were unwilling to borrow, they were happy to spend money they got from the government. Now that government supports are being pulled away, the effects of deleveraging are in plain view. Home and car sales are plummeting again. Job growth has shrunk to a sliver. Personal bankruptcies are soaring. Deflation, a dangerous state of economic dead air, when prices fall from lack of demand, is a distinct possibility.

Credit and inflation are really two sides of the same coin. When credit expands, people have more money to pay for goods, and prices go up. The Federal Reserve Board has kept short-term interest rates at nearly zero, effectively jamming the credit-creation pedal through the floor. But it hasn’t persuaded people to take out their wallets or their credit cards, stoking fears of a Japan-like deflation. Core inflation (which measures price increases of everything but energy and food) has fallen to its lowest level in 44 years. As people pay back loans rather than take out new ones, they exert a drag on business. As Pomboy writes, “The U.S. economy is in the grips of a powerful but silent undertow.”

Some of the deleveraging is being forced by banks. Underwriting standards have toughened, making it harder for people to get loans. (This is a good thing, by the way. The reason we got into trouble is that banks were too easy.)

Indeed, the underlying cause of deleveraging is that Americans got too leveraged. This excess was decades in the making. In the aftermath of World War II, the average family earned far more, each year, than the total of its borrowings. But beginning in the 1970s or so, the culture relaxed. Credit cards and mortgage options proliferated. By 2001, household debt reached a par with annual after-tax household income. (The average family owed what it earned.) By the peak of the bubble, in 2008, borrowings had surged to 36 percent more than income.

Which raises the issue: how much of that debt will have to be repaid before people return to their customary, and stimulative, profligacy? Thus far, we have undone only a portion of the excess. Household debt now stands at 26 percent more than income — still very high by historical standards. “There is no magical level where it should be,” says David Resler, an economist with ­Nomura Securities. “There is no clear equilibrium.”

Absent a massive federal stimulus (and maybe even with one), the economy is not likely to show much life until deleveraging ends. The conventional view is that we are almost there. That assumes that the average American will resume borrowing and spending before the prior excesses are fully washed out. To return to the status quo of before the housing boom — say, back to debt to income ratios prevailing in 2000 — it would take five more years of deleveraging at the current rate. Deleveraging cycles are rare, notes David Rosenberg, an economist with the Toronto firm Gluskin Sheff, but five to seven years is typically what they take. The Conference Board, which asks consumers every month whether they anticipate buying a home, a car or an appliance within the next six months, reported plummeting numbers in June. Consumers used to get their kicks from new Sub-Zero refrigerators; now they chip away at their balances. The turn is yet to come.

Roger Lowenstein, an outside director of the Sequoia Fund, is a contributing writer and author of “The End of Wall Street.”

Sunday, July 18, 2010

Via: www.ataxingmater.com I have been saying for some time that marginal tax rates on income over a million dollars or so should be at 75-90 percent for no other reason than to bring the members of the ruling klepto-plutocracy back down to Earth. And do away with the special loopholes the rich drive through.

The topic of executive compensation has received tremendous attention over the years from both the research community and popular media. In this paper, we examine a heretofore ignored consequence of rising executive compensation. Specifically, we claim that higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers. We present findings from two studies - an archival study and a laboratory experiment – that show that increasing executive compensation results in executives behaving meanly toward those lower down the hierarchy. We discuss the implications of our findings for organizations and offer some solutions to the problem.

Trends in this country are ominous.

Wages for the middle class have stagnated, especially with the waning power of labor unions to demand an adequate share of corporate revenues (a result of the decades-long effort of neocons and multinational corporations to kill labor unions and make new unionization efforts in previously nonunionized industries very difficult through generous provisions for employer control and significant hurdles for union approval).

The middle class has therefore depended more on debt than it should, a dependency that has been encouraged by the financialization of the economy and the hunger of the financial institutions and shadow banking system for "product" from which it can reap multiple layers of fees and excess profits. That easy flow of credit led directly to the financial crisis that caused the Great Recession.

Meanwhile, those at the top have done well and those at the very top--the ultra rich in the top tier of corporate status and in the finance (and shadow finance) industry and its related hangers-on--have done exceedingly well by being able to keep a much larger share of the business profits for themselves.

That inequality then has created a feedback cycle of disrespect for ordinary workers and greed for more profits and status and power that also led directly to the financial crisis that caused the Great Recession.

And now we learn the capping blow (which common sense tells us anyway, given what we know about human nature and its frequent inability to handle the struggle between self-interest and altruism in ways that benefit all) those at the top who have been paying themselves exceedingly well (and their buddies when they serve on their boards of directors) are likely to treat their employees exceedingly poorly. Greed at the top goes along with meanness towards those considered "beneath" them.

From my perspective this is just one more reason (i) to ensure that ALL compensation income is subject to payroll taxes (removing the Social Security cap) and (ii) to increase the tax rates on the income of the top by adding more rate brackets. We should go back to the type of system we had before Reagan, when there were many more "rate brackets" under the income tax. It's really not reasonable in a progressive tax system to fail to distinguish between incomes of a quarter million and incomes of $10 million--they should not be taxed at the same marginal rate. And the hedge or equity fund or real estate partnership manager who makes more than a million a day as his compensation for managing (paid, of course, part as fee and part as "carried interest") should be taxed at a rate considerably higher than the CEO who makes "only" 10 million a year. The wacky system we have right now lets that equity fund manager pay the preferential capital gains rate under a realization system--meaning with deferral as well as lower rates!

So why is it that Congress--even in a period of high deficits and lots of talk about having to change the benefits under Social Security because of the GOP and blue-dog Dems' worries about the deficits (even though Social Security has actually been running a surplus) --couldn't bring itself to pass a bill that would treat carried interest as the ordinary compensation income that it is, so that fund managers would pay tax the same way that their firm's janitor does? Talk about meanness.

Monday, July 12, 2010

BOSTON -- The co-chairmen of President Obama's debt and deficit commission offered an ominous assessment of the nation's fiscal future here Sunday, calling current budgetary trends a cancer "that will destroy the country from within" unless checked by tough action in Washington.

The two leaders -- former Republican senator Alan Simpson of Wyoming and Erskine Bowles, White House chief of staff under President Bill Clinton -- sought to build support for the work of the commission, whose recommendations due later this year are likely to spark a fierce debate in Congress.

"There are many who hope we fail," Simpson said at the closing session of the National Governors Association annual meeting. He called the 18-member commission "good people with deep, deep differences" who know the odds of success "are rather harrowing."

Bowles said that unlike the current economic crisis, which was largely unforeseen before it hit in fall 2008, the coming fiscal calamity is staring the country in the face. "This one is as clear as a bell," he said. "This debt is like a cancer."

The commission leaders said that, at present, federal revenue is fully consumed by three programs: Social Security, Medicare and Medicaid. "The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans -- the whole rest of the discretionary budget is being financed by China and other countries," Simpson said.

"We can't grow our way out of this," Bowles said. "We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can't tax our way out. . . . The reality is we've got to do exactly what you all do every day as governors. We've got to cut spending or increase revenues or do some combination of that."

Bowles pointed to steps taken recently by the new coalition government in Britain, which also faces an acute budgetary problem, as a guide to what the commission might use in its recommendations. That would mean about three-quarters of the deficit reduction would be accomplished through spending cuts, and the remainder with additional revenue.

Most Republicans in Congress are opposed to any tax increases, which has made the work of the commission far more difficult. Bowles and Simpson appealed for support to the governors, who have been forced by their states' constitutions to balance their budgets with deep spending cuts and, in many cases, tax increases.

Bowles and Simpson said the commission would have had a stronger hand politically had it been created by Congress, rather than through an executive order. Simpson was pointed in his criticism of seven Republicans who once co-sponsored such a measure but who helped block it in the Senate.

"As far as I can discern, it was to stick it to the president," Simpson said. "That's where we are in Washington." He later added that all seven "have now come to us to say, 'We're ready to help.' "

The presentation by Simpson and Bowles, which included repeated statements of determination to produce a bipartisan set of recommendations, drew praise from the governors.

"I don't know that I've every heard a gloomier picture painted that created more hope for me," said Arkansas Gov. Mike Beebe (D).

Washington Gov. Chris Gregoire (D) said that many governors fear that the commission's recommendations will result in more demands on the states.

Bowles, who noted that the 1997 balanced-budget agreement between the Clinton White House and the Republican-controlled Congress included many provisions that put more burdens on the states, said that wasn't likely.

"I don't think you're going to see a lot of devolution coming from us because the states are all broke," he said.

Simpson also warned that the November elections could add another wild card to the work of the commission. "I have no idea what's going to happen on Election Day but it's going to be disruptive . . .," he said. "It's going to be a big wake-up call around the whole United States. I have no idea where it's going, but thank heaven we have a month then to work through the wreckage."

Saturday, July 10, 2010

I am back from visiting a friend who is a top 1-percenter in the Boston-Washington corridor, so I am chockerblot with dismay at the Pollyanna Obama-boosterism of those riding on the Stimulus Gravy Train. It really took me aback to be asked to contribute to groceries by someone with two homes, including a vacation home on a beautiful island in Maine and annual compensation close to half a million dollars. The greed and unawareness of how everyone else lives of the top 1 percent is simply astounding.

Friday, July 9, 2010

As I have pointed out in the past, Consumption reached unsustainable percentages of GDP over the past 30 years as median wages stagnated, the rich manipulated the tax system and corporate compensation to their advantage, and consumers financed consumption spending out of illusory bubble profits on their houses, or simply out of increased debt. Note that wages and salaries began their decline in 1971.while the federal government led the way toward greater indebtedness for all. The conversion of billions of dollars of compensation into “capital gains” hides the trend toward increasing top-drawer incomes when looking at the NIPA numbers for wages and accrued salaries. See Saez for what the tax returns showed.

Investment is at record postwar lows as a percentage of GDP, and as everyone knows, Government spending (not pictured) is rising as a share of GDP.

Inevitably, Consumption must fall—unless there is a dramatic increase in wage and salary income (that would also fuel derived domestic investment demand, presumably). But will (domestic) Investment step up to the plate to fuel aggregate demand without Consumption being supported by incomes? Not likely, when there are so many solvent, rapidly growing countries in the world to invest in without the specter of the IRS hanging over them. See Global Guerillas for an argument that the US is becoming a "hollow state,” and The Global Political Awakening and the New World Order for a high-toned prediction that seems to say that the New World Order will be toast pretty soon. The prescient Gerald Celente seems to think we’ll be hearing a lot of “power to the people” soon.

LOS ALTOS, Calif. — No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars is seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

Five properties here in Los Altos were scheduled for foreclosure auctions in a recent issue of The Los Altos Town Crier, the weekly newspaper where local legal notices are posted. Four have unpaid mortgage debt of more than $1 million, with the highest amount $2.8 million.

Not so long ago, said Chris Redden, the paper’s advertising services director, “it was a surprise if we had one foreclosure a month.”

The sheriff in Cook County, Ill., is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of Chicago — like Wilmette, La Grange and Glencoe. The occupants are always gone by the time a deputy gets there, a spokesman said, but just barely.

In Las Vegas, Ken Lowman, a longtime agent for luxury properties, said four of the 11 sales he brokered in June were distressed properties.

“I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios — that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”

The defaulting owners, he said, often remain as long as they can. “They’re in denial,” he said.

Here in Los Altos, where the median home price of $1.5 million makes it one of the most exclusive towns in the country, several houses scheduled for auction were still occupied this week. The people who answered the door were reluctant to explain their circumstances in any detail.

At one house, where the lender was owed $1.3 million, there was a couch out front wrapped in plastic. A woman said she and her husband had lost their jobs and were moving in with relatives. At another house, the family said they were renters. A third family, whose mortgage is $1.6 million, said they would be moving this weekend.

At a vacant house with a pool, where the lender was seeking $1.27 million, a raft and a water gun lay abandoned on the entryway floor.

Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.

Fannie Mae and Freddie Mac, the two quasi-governmental mortgage finance companies that own most of the mortgages in America with a value of less than $500,000, are alternately pleading with distressed homeowners not to be bad citizens and brandishing a stick at them.

In a recent column on Freddie Mac’s Web site, the company’s executive vice president, Don Bisenius, acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities.

The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.

The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”

Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.

“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

The rich and successful often come naturally to this sort of attitude, said Brent T. White, a law professor at the University of Arizona who has studied strategic defaults.

“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.

The CoreLogic data measures serious delinquencies, which means the borrower has missed at least three payments in a row. At that point, lenders traditionally file a notice of default and the house enters the official foreclosure process.

In the current environment, however, notices of default are down for all types of loans as lenders work with owners in various modification programs. Even so, owners in some of the more expensive neighborhoods in and around San Francisco are beginning to head for the exit, according to data compiled by MDA DataQuick.

In Los Altos, Los Altos Hills and the most expensive neighborhood in adjoining Mountain View, defaults in the first five months of this year edged up to 16, from 15 in the same period in 2009 and four in 2008.

The East Bay suburb of Orinda had eight notices of default for million-dollar properties, up from five in the same period last year. On Nob Hill in San Francisco, there were four, up from one. The Marina neighborhood had four, up from two.

The vast majority of owners in these upscale communities are still paying the mortgage, of course. But they appear to be cutting back in other ways. The once-thriving Los Altos downtown is pocked with more than a dozen empty storefronts in a six-block stretch.

But this is still Silicon Valley, where failure can always be considered a prelude to success.

In the middle of a workday, one troubled homeowner here leaned over his laptop at the kitchen table, trying to maneuver his way out from under his debt and figure out the next big thing.

His five-bedroom house, drained of hundreds of thousands of dollars of equity over the last 13 years, is scheduled for auction July 20. Nine months ago, after his latest business (he has had several) failed in what he called “the global meltdown,” the man, a technology entrepreneur, said he quit making his $9,000 monthly payments.

“I’m going to be downsizing,” he said.

The man spoke on the condition of anonymity because, he said, he did not want his current problems to interfere with his coming reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”